A confidential industry report has revealed how fund groups are living or dying by their distribution strategies in the present sales environment. The report, which gives sales figures for the first quarter of this year, shows that the groups which are most committed to supporting IFAs are generally leapfrogging rivals with less clout in the sector.
The biggest exponent of this is Skandia Investment Management, which has become the fastest-growing fund group in the UK with sales of £228m in Q1. The firm, which launched in April 2003, attributes its success largely to its distribution capability, especially Skandia Life's salesforce.
Skandia IM head of investment marketing David Orr says: “This has given us a massive coverage of a huge number of intermediaries at a time when there is a big shift into the multi-manager area as more and more IFAs are outsourcing investment management.”
Successfully marrying good products to extensive distribution is crucial to the independent groups with little in-house distribution capability. According to sources, firms with huge branch networks worry much less about quality of product.
One says: “If you have tied distribution – and by this I mean banks and life companies – you can sell rubbish essentially. If you have not got that and you rely on IFAs, then you have to have quality product. You cannot build distribution without it.”
Skandia IM has the huge advantage of being able to tap into the telescopic reach of the life company, whose 100-strong salesforce is rumoured to be on generous commission arrangements. But it would not be outselling groups such as Fidelity and Jupiter without a good product range, which has led some experts to predict that Skandia IM has a good chance of maintaining its position.
The other factor going its way is that, unlike the vast majority of its rivals, it is a new business. It does not have a mature book crammed with older investors likely to switch providers or die. Its total repurchases stood at just £20m for the quarter while companies such as Scottish Widows – which saw more than £170m flood out of its corporate bond fund alone – suffered massive redemptions which hit their net retail sales.
Forty per cent of groups sustained net repurchases during the quarter, leaving many of the biggest firms with negative sales. Henderson Global Investors and Old Mutual, for example, both had net retail sales of -£60m while M&G stood at -£28m.
The worst figures came from First State, which saw net retail sales of -£92m as investors flocked out of its Asia Pacific fund following its closure to new business at the start of January.
Head of UK and European retail sales Richard Jones says: “It is painful but the alternative – the fund suffering from being too large – was less appealing. We hope that many of the private banks and wealth management firms that left the fund because they are unable to stay in a closed fund will return to us in due course.”
As First State's net retail sales were £115m in Q4 2003, it appears to have legitimate grounds for optimism but some other groups have very different reasons for their net outflows. M&G's net retail sales of -£28m in Q1 were only slightly better than its Q4 2003 figure of -£34m. Managing director Phil Wagstaff attributes this to the gradual shift to equities over recent months.
He says: “We have the bigg-est two corporate bond funds so any asset-allocating away from bond funds to equity funds is going to have an impact on us. Our gross sales were still £209m, which was a good result for us.”
Even groups which did not suffer poor first quarters slid down the sales chart. New Star and Schroders, respectively the fourth and fifth-biggest net retail sellers in Q4 2003, both fell from the top 10 despite each pulling in at least £100m.
Schroders head of UK retail Robin Stoakley says: “There is still an awful lot of business going into equity income and corporate bond funds.We were still £100m net positive, however, which we are very satisfied with.”
Schroders is benefiting from strong sales into a number of its products such as its mid-250 and UK high alpha funds. But many groups rely heavily on inflows into one flagship fund. Liontrust, which grew its assets under management by 96 per cent to more than £5bn in the 12 months to March 31, saw gross retail sales of £200m in the first quarter, of which £161m piled into its first income fund.
Marketing director Jonathan Harbottle does not see this is as a problem. He says: “It is just that the market has gone towards equity income. As long as the fund achieves dividend growth, investors will be happy. We have a good spread of other products.”
Invesco Perpetual says its net retail sales of £164m in the first quarter of this year were due partially to its efforts to reduce redemption levels through the replacement of underperforming fund managers, particularly on its European growth fund. But head of distribution Mike Webb also says Invesco has reaped the benefit of its continued support of generalist IFAs at a time when others were concentrating exclusively on the investment specialists.
Not all the other firms in the top 10 have adopted this approach but almost all – including Fidelity and Investec – place huge emphasis on supporting IFAs. Good products are crucial but, as Skandia IM has shown, their worth to a company is greatly diminished without the distribution.